How to Invest in MLPs

Becca Followill, who covers energy pipelines for US Capital Advisors, offers advice, and a warning, about master limited partnerships.

This transcript has been automatically generated and may not be 100% accurate.

I ... we are seeing best ... known as master limited partnerships been on fire in recent years ... but as with any high area investors should be careful when reading in the space ... and Jack Otter Editor Barron's dot com ... I'm here with ... the follow ... through is the head of equity research and two covers MLP is ... for us Capital Advisors thanks for being here ... ah so let's talk about NLP is which of course have been so popular and for fifteen years with yes if you have not had a fantastic investment ... but you say it like anything and we could see the road one business ... you can always improve on anything I think what we're watching Craker flees the money flowing space has been tremendous ... and though the second quarter alone it was six billion dollars while ... I'm in the first half of the year ten billion dollars ... money coming to the space many open end funds closed end funds ETF teen's ... and and your it's a it's it's ... surpassed two thousand thirteen which was also great your ... toes on as investors are chasing yield which the during the same thing with utilities or two with treats ... on the space could continue to go higher ... I can explain briefly what an MLP en masse on a partnership with Mestrallet partnership of certain assets are all fine which means that they don't pay taxes at the corporate level like normal corporations ... and said that's additional cash that's available for investors ... must master limited partnerships pay out of all of their district of cash on ... cash so that's ... that's left over after they spend the money to just basically maintaining ... and so on ... most corporations don't pay out most to their cash into these are considered ... revealed instruments that because it was going on show to discuss are also a group that steel scrap those of the important when most of the assets these companies hold our pipelines that carry natural gas and oil and oil ... so with this great boomer having the middle the country ... I've been doing quite well ... it's not just that once it's all the infrastructure ... needed to get that chance the market ... gas oil and liquids ... is pipelines and processing plants traction leaders ... in its export facilities at ... liquefied natural gas terminal so it's it's a variety of different assets that are all need is a result of ... the growing production the last and investors have not only gotten this great growth put their guns sweet deals they're coming down a little bit ... on at the moment where the seeing opportunities in sectors ... right now the space is fielding about five point three percent on average ... which is fairly rich compared to historic levels out and it's also great given the low rate environment arteries Molly's money pledged to cut that that that if you look over the next twelve months the consensus consensus estimates call for an eight percent increase in distribution so you've got ... local dish of returns which is very attractive than almost any more and ... as far as sick opportunity is one of the things that were seen as exports of products ... so it started that we were an importer ... of gas with an importer of crude oil importer refined products ... LP cheese or a fight between classes ... operate now turn the corner and start to export natural gas and first facility comes online next year ... aam ... we are exporting ... Opinion teaching or for use in order ... I wish to export think ... we are this a recent ruling that allow for the export condensate which can actually occurring product becomes the Korean week ... and opens the door aircraft be able to eventually export credit ... the Kaiser receive beneficial divestitures the batter with a key player says Enterprise Products Partners ... they're the largest MLP but there'll said during an all ... and they settle on a cash in order to grow ... so they're building any new acting export terminal with the twenty first of all the any ... cooking you can meet an export terminal ... on just a high quality company and we should point out that this is very complicated engineering is not easy to liquefied natural gas and transport it so the companies that can do it are probably and so creamy ... the deal also major investment meaning or eight Eon LNG export terminal on a financially as export terminal is ... in billions in aid to ... ethane export terminals probably billion dollars from the checkout line ... it's now obviously people been predicting interest rates would rise for years and years and years it has not happened ... let's assume that someday dust what happens to MLP investments ... it's a tricky one because I know we have in the space is fairly new ... to look back in two thousand to their only thirty auntie's the markets have plans ... it was around thirty billion dollars and ten now with the space of a market cap of seven hundred and fifty billion dollars ... and we haven't seen it materially rising interest rate environment so we don't know sticker was can happen ... if you look at the correlations ... since LP classes going around ... there's not a great correlation with interest rates that said there has to be some kind of pullback of last year when there was concern in a bid to cut interest rates would ... rise and that the crew pulled back a little bit but it's also ... more sticky than utilities are weeds because a lot of people in the scandal piece to hold them for a long time because the tax consequences ... to test performed better than some of the old ... thank you ...